Mongolia Bars SouthGobi’s U.S. Chief From Leaving Country

By Yuriy Humber -
Feb 1, 2013

Mongolia has banned Justin Kapla, a
U.S. citizen and president of Rio Tinto Group’s SouthGobi Sands
LLC coal mining unit, from leaving the country as part of a
probe into corruption among domestic officials.

Kapla was designated as a witness in a criminal case
against D. Batkhuyag, the former chairman of Mongolia’s mineral
resources authority, SouthGobi Sands said in an e-mailed
response to questions yesterday. Batkhuyag was yesterday jailed
for six and a half years for illegally issuing over 120 mining
licenses, according to Mongolian news agency news.mn.

“We are aware of the case of Justin Kapla, who has an exit
ban in Mongolia,” a spokesman at the U.S. embassy in Mongolia
said by phone, declining to be named due to government policy.
“We are in touch with Mr. Kapla and are providing appropriate
assistance. Due to privacy considerations we are unable to
comment further.”

The restriction placed on Kapla is at least the second for
a SouthGobi executive, following the travel ban on chief legal
counsel Sarah Armstrong, an Australia native, last year. The
Ulan Bator, Mongolia-based company, whose Hong Kong-listed
parent SouthGobi Resources Ltd. (1878) is majority owned by Rio, has
been under scrutiny from Mongolian authorities since last April,
after state-run Aluminum Corp. (2600) of China Ltd.’s offer to buy it.

Kapla said he couldn’t comment on the ban when contacted by
phone by Bloomberg News. SouthGobi said it won’t comment further
on the matter. Mongolia’s Independent Authority Against
Corruption, which is conducting the probe, didn’t reply to
questions e-mailed to its general inquiries address. Its officer
for international affairs said by phone she couldn’t comment.

Rio Tinto declined to comment on Kapla’s travel ban, the
company said in an e-mail.

Rio Problems

Rio Tinto has faced mounting problems in Mongolia.
Lawmakers have called for the company to renegotiate an accord
to develop Oyu Tolgoi, the world’s biggest copper project under
construction. Rio, the second-biggest miner, is considering a
temporary halt to Oyu Tolgoi to protest the demands, two people
familiar with the company’s plans said this week.

SouthGobi’s troubles started after Chalco, as the Chinese
company is also known, said last year it plans to buy majority
control of the Mongolian coal company. The planned acquisition
raised a public outcry, according to then vice finance minister
Ganhuyag Chuluun Hutagt. The deal led to Mongolia passing a law
in May that curbed foreign investment, especially in relation to
state-owned firms.

The same month, Mongolia’s anti-corruption agency raided
the offices of SouthGobi Sands, as part of an investigation into
expired licenses. The agency’s probe found that former mineral
resources chief Batkhuyag had reissued four suspended SouthGobi
permits and transfered another license to a company run by
associates, according to News.mn and UB Post newspaper reports.

Not Charged

“To date, neither SouthGobi nor any of its employees have
been charged with any wrongdoing,” the company said in a
statement Nov. 15. “SouthGobi and its employees continue to
cooperate with the Mongolian government agencies, including the
Independent Authority Against Corruption, in their ongoing
investigations,” it said.

Chief Legal Counsel Armstrong was questioned by anti-
corruption officers in connection with their probe, SouthGobi
said Dec. 24. Armstrong returned to Australia at the end of
December.

Permit Transfer

President Tsakhia Elbegdorj has said Mongolia needs to step
up its battle against corruption. This has included a number of
high-profile investigations last year, among them into ex-
president Nambaryn Enkhbayar, who was jailed for four years on
charges he denied.

The investigation into SouthGobi centers on the transfer of
some of the company’s permits, which occurred before Kapla
joined the company, Minnesota state native Kapla said in a
letter to his local U.S. Senator Alan Franken, a copy of which
was obtained by Bloomberg News.

Franken’s spokeswoman Alexandra Fetissoff said that the
senator had received Kapla’s letter. “We have been in contact
with the family,” she said.

U.S. Embassy

Kapla has lived in the country for seven of the last nine
years, according to the letter.

The travel ban has been in place for at least 11 weeks and
Kapla has not been called in for questioning in that time, he
said in the letter. The ban was originally imposed in May and
revoked in June, and he learned in October that it had been
reinstated, Kapla said in the letter.

Turquoise Hill Resources Ltd. (TRQ), known as Ivanhoe Mines Ltd.
before Rio Tinto took control last year, owns 58 percent of
SouthGobi Resources. SouthGobi Sands is a wholly owned unit of
the Hong Kong-listed SouthGobi Resources.